In the beginning of last week, the US dollar gained against most of its major rivals as risk aversion intensified confirming that it still holds its status as a safe haven currency. On January 21 the EUR/USD reached its lowest level so far this year at 1.4028, which seems to indicate the continuation of the correction which started in December 2009.
Rumours surfaced from Japan about the next G7 meeting, saying a collective declaration could be issued pressing China to adopt more flexibility of its currency, the yuan. On the other hand, President Barack Obama's new bank regulations, as well as the concerns of US Treasury Secretary Geithner regarding the competitiveness of American industries continue to increase speculation of a drop in performance for American banks against international competition.
Meanwhile, US economists increased their estimate for Q4'09 GDP growth to 5.5 per cent at an annual rate, from the earlier 3.5 per cent forecast, an acceleration from the 2.2 per cent growth in Q3'09, following the better than expected inventory data published recently. In other data releases, both the Core PCE and the final January University of Michigan Confidence Index are expected to inch higher. The Chicago PMI is expected to remain above 50 but dip from the December print of 60.
In Europe, the unemployment figure due this week is still expected to stay high, stabilizing at 10.1 per cent (8.1 per cent in Germany), and the need for Greece to fundamentally reshuffle its economic policy continue to apply pressure on the euro. The IFO surveys published earlier in the week show a continuation of the rising trend that began in April 2009.
No surprises either from the Bank of Japan in their last policy meeting earlier this week. Reaffirmation from Naoto Kan, Japanese Finance Minister, that the BoJ should not be asked to adopt specific policies, should have a significant impact on further strengthening of the yen.
The Australian dollar has dominated the New Zealand dollar in the last few weeks, as CPI figures continue to edge higher. This will push the Reserve Bank of Australia to raise its cash interest rates by a further 25 basis point say economists. The RBA's rate which now stands at 3.75 per cent, against the 2.50 per cent of its south pacific neighbours, after three consecutive rate hikes in October, November and December 2009.
Upcoming FX key events
Today: US Durable Goods Orders. Tomorrow: European Unemployment rate, US Q4 GDP Annual Rate, University of Michigan Confidence Index and US Core PCE.
FX technical key points
EUR/USD is bearish, target 1.3750, key reversal point 1.4800
USD/JPY is bullish, target 98, key reversal point 85
GBP/USD is bearish, target 1.5050, key reversal point 1.7000
USD/CHF is bullish, target 1.1000, key reversal point 0.9950
AUD/USD is bearish, target 0.7800, key reversal point 0.9400
NZDUSD is bearish, target 0.6200, key reversal point 0.7650.
Mr Bovay is senior trader at RTFX Ltd.
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